■ Unexpected executive departures
■ US joint venture increased profits 3 per cent last year
■ Africa outperforming Asia Pacific
Earlier this month, SABMiller (SAB) finance chief Jamie Wilson unexpectedly tendered his resignation, citing "personal reasons". The news came barely a week after Tom Long, chief executive of the group's US joint venture MillerCoors, announced that he would be retiring in June. News of the departures heightened speculation that Anheuser-Busch InBev NV (ABI:EN) was lining up for a tilt at SABMiller - although these rumours have been doing the rounds for some time.
Midway through February, MillerCoors announced a steep fall in underlying fourth-quarter earnings as a result of falling beer sales volumes. Full-year earnings, however, are still set to outstrip those for 2013 by nearly 3 per cent. And recent marketing measures are starting to bear fruit: sales of Miller Lite grew in the fourth quarter - the first quarterly increase in seven years.
An earlier third-quarter update for the whole SABMiller group highlighted the variance in performance across its markets. Beverage volumes are still growing strongly in Africa, but the performance of SAB's Asia Pacific segment was held in check by a 9 per cent volume decline in China, where adverse weather conditions continued to weigh on sales.
Numis says…
Buy. MillerCoors, which generates around 12 per cent of SAB's trading profits, has reported a 12 per cent fall in fourth-quarter earnings. Domestic sales volumes for both MillerCoors' retail and wholesale segments fell by 2.5 per cent for the year. Nevertheless, net revenue per barrel, excluding contract brewing and company distributor sales, rose 2.9 per cent. For 2015 management expects market pricing in the US market to be "a bit more aggressive". Having reviewed our growth and US dollar assumptions in the wake of SAB's third-quarter update, we have downgraded our 2015-16 forecasts by 4.5 per cent. We expect EPS of 233¢ for the year to March 2015, rising to 244¢ next year.
JPMorgan Cazenove says…
Overweight. SABMiller's premium to the sector has been waning as a result of margin pressure. Anheuser-Busch's shares have also performed better, which has led to a revival of M&A speculation. We retain our view that this oft-mooted deal would offer ABI's controlling shareholders lower returns at higher risk than a comparable cash return. In any case, a merger might not be practicable because ABI's key shareholders will be reluctant to cede voting equity, while key SAB shareholders (Altria 27 per cent and Santo Domingo 14 per cent) may require equity to avoid paying a fortune in capital gains tax. We expect 2015 EPS of 239¢, rising to 250¢ next year.
